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Xin Li
Using firm-level data on ASEAN5, this paper studies the differential effects of macro-financial and structural factors on corporate saving behavior through the lens of external financing dependence. The finding suggests that non-financial corporations in ASEAN5 have been subject to binding financial constraints over the past two decades. Greater capital account openness or exchange rate depreciation reduces the average saving rate of industries with low dependence on external funds, while it increases the saving rate of industries with high dependence on external funds. The effects are greater for export-oriented industries. An improvement in banking sector competition, banks’ lending efficiency, or policy clarity is associated with lower saving rate of firms across the board.
Ms. Ana Corbacho and Mr. Shanaka J Peiris


The first part of the book examines the evolution of monetary policy and prudential frameworks of the ASEAN­5, with particular focus on changes since the Asian financial crisis and the more recent period of unconventional monetary policy in advanced economies. The second part of the book looks at policy responses to global financial spillovers. The third and last part of the book elaborates on the challenges ahead for monetary policy, financial stability frameworks, and the deepening of financial markets.

International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper discusses reasons behind rise of inflation in Philippines. The paper focuses on inflation developments and the monetary policy framework in the Philippines. It employs a global latent factor model to decompose inflation into common drivers and idiosyncratic factors for a sample of 62 countries. Based on these results, it then models inflation in different regions and presents the single country, single equation model and conducts out of sample forecasts to determine consistency with the medium-term inflation target. The common factors modeling of inflation suggests that inflation in the Philippines depends on world commodity price developments and movements in the US dollar effective exchange rate. However, theory suggests that domestic cyclical conditions also matter. We assess the importance of these variables by estimating a Phillips curve augmented by world commodity prices and the nominal exchange rate for 2000–2013. Using the Akaike-Schwartz criterion, the optimal lag length is found to be four. Given the potential for serial correlation and heteroskedasticity, we use the Newey-West standard errors to find the consistent estimates.
International Monetary Fund. Asia and Pacific Dept
KEY ISSUES Context. Growth remains rapid, but has moderated from the 7¼ percent recorded in 2013. Remittances and accommodative monetary and financial conditions remain the primary growth drivers, despite volatile capital flows, slowing activity in the region and severe natural disasters. Inflation has picked up to over 4 percent, while the current account remains in surplus. Local financial markets were moderately impacted by the Fed’s “taper talk and action,” weakening the peso and equity prices. Credit growth has quickened, especially to construction. Potential growth has risen to about 6?6¼ percent. However, persistent weakness in the business climate is a risk to sustained growth and hinders job creation. Foreign ownership restrictions, inadequate infrastructure and high doing-business costs have held back overall investment and employment. Along with frequent natural disasters, this has kept poverty elevated, thereby sustaining outward migration. Outlook and risks. Normalizing financial conditions are forecast to ease growth to 6?6½ percent over the medium term, while keeping inflation within the band and moderating the current account surplus. Abrupt changes in global financial conditions and a sharp growth slowdown in EMs are among the external growth risks. On the domestic front, excessive flow of real and financial resources to the property sector could increase volatility of asset prices and GDP growth over the longer run. Policy recommendations. A more restrictive policy stance is needed to preserve macro- financial stability, with rebalancing of the mix to allow higher public investment spending, while implementing reforms to sustain vibrant growth and make it more inclusive: • Absorbing liquidity and raising official interest rates would address second-round inflation effects and potential overheating and financial stability risks. Allowing the exchange rate to adjust more fully to structural inflows, while smoothing the effect of cyclical flows, would limit further sustained reserve buildup. • Addressing specific risks from real estate and large credit exposures requires further targeted measures and broadening the BSP’s mandate to include financial stability. This would help prevent diversion of systemic risk to shadow banking and strengthen tools to manage risks from deepening cross-border financial integration. • Raising the fiscal deficit from below 1½ percent of GDP in 2013 to 2 percent of GDP in 2014 to accommodate reconstruction spending should be accompanied by tighter monetary and financial conditions. Mobilizing sizable additional stable revenue would ensure room for structural spending priorities while preserving fiscal prudence. • Improving the investment climate by relaxing foreign ownership limits, reducing red tape, limiting tax holidays, and reducing labor and product market rigidities would enhance competition, support PPP execution and create employment opportunities within the Philippines.
International Monetary Fund
This paper outlines reforms to increase the effectiveness of the Fund’s capacity development (CD) program. It builds on the 2008 and 2011 reviews of technical assistance (TA) and the 2008 review of training, which set in motion important changes to make CD more valuable to member countries. Reforms will involve Board endorsement in a few areas and implementation by staff of related next steps.
International Monetary Fund. Asia and Pacific Dept
The Philippines’ macroeconomic fundamentals have improved considerably during the past decade. However, new macrofinancial challenges are emerging. The economy is continuing to adjust to the large persistent inflows from abroad. Transmission of domestic policy interest rates has been weakened by low interest rates abroad and ample domestic liquidity. The continued focus on mobilizing fiscal revenue will help support sustained and inclusive growth, while strengthening resilience to shocks. Improvements in the investment climate would make growth more persistent and support domestic job creation.